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Business Assistance:
Home-Based & Micro Businesses in Mississippi - FAQ 11

What is a franchise?

Making the decision to go into business is a very important step and should be done so with a lot of careful thought and planning. Because of the risk and the amount of work involved in starting a new business, some new and potential business owners choose franchising as an alternative to starting a new, independent business.

The Better Business Bureau describes franchising as a method of product or service distribution---a means that a company uses to get its products to the consumer. It is a system in which a company shares, throughout contractual agreement, its economic power and the possibility for profits with independent businessmen to achieve rapid and effective distribution of its product or service. These established businesses are set up in such a way that when the businesses decide to expand, they invite people to purchase the opportunity to buy into the established businesses.

The franchisee pays the franchisor for the business opportunity and agrees to operate the business according to the franchisor's directions. The franchisor owns all the trademarks, business methods, and supplies that it allows others to use under its contract. The difference between a franchisor's and corporation's operating a chain of stores is that the chain store has store managers who are company employees, whereas the franchise operation is owned and managed by self-employed business people. For the help and services provided by the franchisor, the franchisee makes a capital investment in the business and usually pays fees and royalties the franchisor. There are primarily two forms of franchising:

  • products/trade name franchising

  • business format franchising
In product/trade name franchising, the franchisor owns the right to the name or trademark and sells that right to a franchisee. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans and even assistance in obtaining financing.

Before buying a franchise, it is essential you do your research and gather all the information needed to make an informed decision. It is also recommended that you carefully examine the information with your attorney, accountant, and/or business advisor before signing any contract.

Make sure you know exactly what you are buying. Franchise packages vary from franchise to franchise . When you by a franchise you should be buying continuous direction and support from people who are experts in their fields. Franchise agreements may include the following:

  • using the franchisors' name
  • help in finding a location
  • store design and outfitting the store
  • advertising
  • acquiring supplies
  • management training
  • protected territory
  • financing
  • marketing and promotion
  • record keeping
  • etc.
The advantage of buying a franchise may include fulfilling the desire for independence with minimum risk and maximum opportunities for success through the use of a proven product or service and a proven marketing method. There are franchise opportunities in almost every industry: fast foods, motels, automobiles and parts, maid services, business services, dry cleaning, home repairs, health clubs, industrial supplies, building products, schools, --- and the list keeps growing. Whatever your interest, there probably is a franchise opportunity for you.

The following information is available on the subject of franchising from the Small Business Administration (SBA):

The International Franchise Association has a resource center for current information and offers publications, audiotapes, and videotapes on subjects relating to franchising.

Franchising Checklist - The Franchising Checklist asks important basic questions relating to the franchisor, the product or service, and the franchise contract that should be answered in the affirmative before going into business.

Sources of Information:
Cashing In On Business Opportunities
Small Business Administration
Service Crops Of Retired Executives (SCORE)

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